And They Call It Ponzi Love

The not-so-reputable mortgage broker thought he had a sympathetic listener on the other end of the phone. Actually, my skin was crawling as he blathered on about his solution to our current real estate woes: "The feds have to lay off with all these rules against lenders and the banks have to start taking on risky loans again--otherwise, we can't pump up the numbers of buyers qualifying for mortgages. If buyers can't buy, the real estate market stays in a sinkhole. Can't the assholes in Washington understand that they really, really need us to save the market?"

This seedy mortgage salesman succeeded as a bit player in the national, semi-officially sanctioned, quasi-legitimate real estate Ponzi scheme for years. At the top were the mortgage brokers and lenders who winked, nodded, then looked the other way while financing anyone in a pre-corpse state. Alongside were the bundlers ensconced on Wall Street, exchanging secret handshakes with mortgage originators before selling dicey derivatives and other cuts of mystery mortgage meat to greedy and/or ignorant investors.

Buyers and sellers were the lifeblood of this national, semi-officially sanctioned, quasi-legitimate real estate Ponzi scheme. Home sellers didn't care about the source of funds paid by precarious purchasers provided they received their asking price. They cashed the checks; then flush with tens (or hundreds) of thousands of dollars, they soon voraciously devoured other homes. These sellers-turned-buyers, often aided by nothing more than their ability to produce a pulse, procured mortgages from lenders so preoccupied with counting profits that the probability of repayment was never seriously considered. Builders kept building and home flippers found funding, all while fattening the bank accounts of real estate brokers and mortgage principals.

To be sure, there were buyers with at least 20% down and verifiable income, and lenders that truly evaluated risks before lending. There just weren't enough for the revelers atop the summit of Mt. Ponzi to keep the party going! Eventually, deceived debtors stopped paying loans they never could afford, and the inventory of unsold/foreclosed homes far exceeded demand. The drumbeats of dissatisfaction reached politicians enjoying low interest rate mortgages and high campaign contributions, who shifted the blame to lax regulators. Those gatekeepers, who had been smugly congratulating themselves for how well the animals were behaving without any need for cage-rattling, found themselves trampled by the crushing herds of cascading mortgage defaults and broadening neighborhood blight.

While this national, semi-officially sanctioned, quasi-legitimate real estate Ponzi scheme fell apart in the past few years, there's more than just the one seamy salesman pushing to revive the ruse. These pro-Ponzi pushers preach about saving all our souls by permitting the few to profit off of many: We've got so much inventory! Let's push buyers out there by making it easy to get new loans again with little or no money down! Let's convince underfunded buyers that they can't be living the dream without owning a home! Neighborhoods will thrive again, businesses will gain customers! We who know how to manipulate the system will get rich again!

I concluded my conversation with the sleazy salesman by asking why he didn't seem concerned that pushing a fatally flawed system would eventually come back to bite the nation in our collective rear ends. His intense retort disturbed me: "Why would you worry about that? The future is far away and we all have to make money now!"